Incentives for coal plant leaves some unsure about cost

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FRANKFORT, Ky. (AP) – Henderson County Judge-Executive Sandy Watkins is conflicted about the idea of giving a company tax incentives to build a coal-to-natural gas plant in his county.

He knows western Kentucky needs the jobs, but is unsure about a proposal to give a portion of that tax revenue back to the coal industry, as an incentive for companies to build alternative fuel plants here.

“We definitely need to have the coal mines operating,” he said. “But we also need to have those dollars going back into the community where the coal is extracted.”

The incentive is central to a package the Fletcher administration says state needs to persuade Peabody Energy of St. Louis to build a $3 billion plant that would convert coal to natural gas in western Kentucky. Over 25 years, the incentives could be worth as much as $300 million to Peabody and other companies that build such plants in the state.

About $120 million would be a credit of as much as 80 percent on the severance tax paid on coal used by companies in those projects. The legislature is expected to take up the incentive package, which was agreed to last week by leaders of the House and Senate, in a special session scheduled to begin Monday.

Lawmakers approved the severance tax in 1972 over strong opposition from the coal industry as part of a tax reform package that eliminated sales taxes on food and prescription drugs. The severance tax is 4.5 percent of the sale price of each ton of coal.

Last fiscal year it generated nearly $222 million. Counties and the state split that money equally.

Using the money as an incentive for energy companies deviates from the intent of the severance tax _ to compensate for the environmental, social and economic costs of coal mining, Watkins and others said.

“It’s one that coal-county governments need to be heard on, and those other local entities and agencies that benefit,” said Tom FitzGerald, director of the Kentucky Resources Council. “The classic severance tax is utilized to reinvest in the host community.”

Opponents of the incentive also say they’re uncomfortable giving severance tax money back to the coal industry.

“The fact that the money is actually going back to the coal companies _ in essence paying them to produce these fuels _ I think is both bad economics and bad policy,” said Justin Maxson, director of the Mountain Association for Community Economic Development.

Coal-county legislators have long fought for more severance-tax revenue to be spent in their communities. But this time around, the coal-county lawmakers generally are in agreement with administration officials and other legislators on the proposal. They say the coal fields, particularly in Western Kentucky, need the jobs.

Technology has reduced the number of coal mining jobs in Kentucky over the last two years, proponents of the deal said.

In western Kentucky, the number of coal jobs fell from nearly 12,000 in 1980 to about 2,700 in 2005, the latest figures available from the U.S. Energy Information Administration. In eastern Kentucky, employment fell from about 35,000 in 1980 to about 14,000 in 2005.

“My concern is the jobs and my concern is a long-term economic future of not only this generation but the next generation that will have opportunities with something like this,” said Sen. Dorsey Ridley, D-Henderson.

Peabody has said the incentives package is crucial if it is to pick Kentucky as the site of a coal-to-natural-gas plant. State economic development officials said a new plant would create about 1,750 construction jobs, 250 permanent jobs for skilled workers at the plant and 550 additional jobs for miners to produce the coal to be turned into gas.

Watkins just hopes to continue seeing a strong flow of severance-tax dollars to Henderson County, funding such projects as new water and sewer lines.

“I feel very traditional about keeping the money for projects for our community,” he said.